Ch 2 Flashcards
New state pension
£168.60 Must have 35 years NICs Not been contracted out of state pension Taxable Retired on or after 6 April 2016
Basic State Pension
£129.20
Prior to 6 April 2016
Taxable
State Graduated Pension
1959 - 1975
Depends on earnings
State Earnings Related Pension (SERPS)
1978
Takes 20 years to build
Payable to those retiring from 1998
State Second Pension (S2P)
2002
Focused on lower paid earners (LET)
Compulsory purchase annuity (CPA)
Taxed as earned income
Paid at 20%, 40%, 45%
Purchased life annuity (PLA)
Purchased from tax free capital, lump sum
State Pension Age
66 from October 2020§
Benefits for families and children
Child benefit: universal, non taxable, £20.70 p/w first child, £13.70 thereafter. Taxable IF partner has income over £50k
Child taxt credit: means tested, non taxable
Maternity allowance: contributions based, non-taxable, £148.68 p/w
Statutory maternity, paternity, adoption and shared parental: contributions based, taxable, £148.68 p/w
Unemployment
Income support: means-tested, non taxable, £57.90 p/w lowest (single), £114.85 p/w highest (couple)
Jobseeker’s allowance: contributions based for 6 months, means tested thereafter, taxable
Statutory redundancy payments: eligibility criteria, non taxable
Working tax credit: means tested, non taxable, dependent on circumstances/income
Capital and interest
Monthly repayments to the lender include sum to cover a contribution towards capital, plus sum for interest
Interest - only
Where only interest accruing n the loan is paid and outstanding capital remains the same. Objective is to pay another source at end of term i.e. via an endowment policy, selling property, ISA or tax free cash from pension.
Low incomly payment but high overall.
Mortgage market review (MMR)
Significantly reduced avaiability of interest only after it came in to effect April 2014
Capped
Lender guarantees interest rate will not rise above a given level for certain period of the loan
Cap and collar
Lender guarantees interest rate on the loan will not rise above a given level (the cap) or minimum rate which it will not fall elow (collar)
Discount
Interest rate charged for initial period is reduced by a set percentage below the standard rate
Euro
Interest and capital of the loan is designated in euros or another currency, usually to take advantage of lower interest rates. Can result in gains or losses as exchange rate moves
Equity linked, also called Shared Appreciated Mortgages (SAMs)
Lender takes a stake in the equity of the proeprty that has been purchased. Amount loaned, on which interest is charged, is less than the amount advanced for purchase. On the sale of the property, proportion of lender’s equity stake is repaid to them. It is possible for borrower to slowly accrue lender’s stake over time
Fixed interest
Interest rate charged remains fixed for a given period. Borrower takes a risk that interest rates generally might fall below for the rate charged, but in exchange have a known liability for mortage interest over fixed period. These schemes often have redemption penalties
Flexible
Monthly payments can be varied if required and lump-sum capital repayments can be made at any time. As capital is repaid, this created a reserve from which the borrower can withdraw cash upp to the initial mortage amount.
Offset
Where a mortgage account and bank account are liked. Interest is charged on the net balance of the two accounts, so if money is kept in the back account, the size of the mortgage is effectively reduced. Even the effect of a monthly salary going in can have an effect and reduce overall interest payments
Tracker
Variable rate mortgage where there is an automatic link built in, so the interest tracks an index, usually the BoE base rate or London Interbank Offered Rate (LIBOR).
Equity release
Typically available to those over 60.
Allows them to release the equity (cash) tied up in home
Available as either lifetime mortgages or home reversion plans
Lifetime mortgages
A loan secured on the home, motgage may be:
- A roll up mortgage (intersted is added to the loan - for exmaple, each year): Client gets a lump sum or regular income and is charged a monthly or yearly interst rate that is added to the loan. Original amount plus rolled up is paid when home is sold
- Fixed repayment: client gets a lump sum but doesn’t have to pay interest. Instead when home is sold, lender is paid a higher amount than borrowed. Amount agreed in advance
- Interest only: pay monthly, can be fixed or variable.
- Home income plan: Money borrowed is used to buy a regular fixed income for life (an annuity). This income is used to pay the interest on the mortgage. Amount borrowed repaid when home is sold
